The Financial Services Agency ordered AIJ to halt business
until March 23 “to safeguard investors, as it appears client
assets have been adversely affected,” Financial Services
Minister Shozaburo Jimi told reporters in Tokyo yesterday. The
regulator is investigating “possible losses,” he said.

The probe is a setback for a pension industry that covers
the world’s fastest-aging population and is seeking alternative
investments to maintain steady returns as Japanese stocks are
the world’s worst performers over the past two decades. Thirty-two percent of 119 Japanese pensions wanted to add alternative
investments this fiscal year, according to a survey in April
2011 by JPMorgan Chase & Co.’s Tokyo-based asset management unit.

“This has a big impact on the pension industry,” said
Mitsushige Akino, who oversees about $600 million at Ichiyoshi
Investment Management Co. in Tokyo. “They will be questioning
alternative investments, but at the same time the fact that
investors are putting money into funds without understanding the
risks is a problem, too.”

Similar to Olympus

The investigation into the 263 asset managers may be one of
the biggest into licensed managers in Japan, Akino said, adding
to growing criticism of Japan’s corporate governance following
Olympus Corp.’s admission it covered up losses by overpaying
advisers. The regulator penalized at least 35 financial
institutions last year including Citigroup Inc. and UBS AG for
breaching securities rules, according to its website.

“The fact that some investors may have invested without
doing proper due diligence does have some similarity” with the
Olympus scandal, Akiko said. “From a corporate governance stand
point, in the end, it’s the smaller investors and the pensioners
that get hurt.”

Investors in Japan, where people 65 years or older will
account for 29 percent of the population in 2020 and almost 40
percent in 2050, are seeking returns after the Nikkei 225 Stock
Average lost 54 percent since 1992, the most among 93 benchmark
measures tracked by Bloomberg. The 10-year Japanese government
bond yield of 0.968 percent is the second-lowest in the world
after Switzerland.

Potential Losses

AIJ may have lost most of the 200 billion yen it manages
for companies’ pension plans, the Nikkei newspaper said
yesterday, citing unidentified securities investigators.

Regulators have been investigating AIJ, which invests in
futures and options of equities and bonds, since the end of
January and discovered that the company has been unable to
explain to investors the current state of its fund, according to
the financial industry’s watchdog.

AIJ’s funds have been traced from Japan to the Cayman
Islands, followed by a trust bank in Bermuda and ultimately to
“a major European Bank” in Hong Kong, the Asahi newspaper said
today, citing an investigation by Japan’s Securities and
Exchange Surveillance Commission. AIJ kept money-flow records up
to the unidentified bank in Hong Kong and no further records
have been found, the paper said.

AIJ, led by Kazuhiko Asakawa, was established in April 1989,
and had 120 clients including pension plans with 183.2 billion
yen in assets as of the end of 2010, according to a statement
from the regulator. It has 12 employees.

AIJ’s fund, which according to the Nikkei report invested
in options, was ranked top among pension funds in 2008, said
Fujio Nakatsuka, a spokesman at Rating & Investment Information
Inc. in Tokyo. He said the rankings were based on responses from
pensions and not what R&I had recommended to investors.

Advantest, Yaskawa

A phone call to AIJ’s main office yesterday was answered by
an automated recording which didn’t take messages.

Retirement funds of companies including Advantest Corp. and
Yaskawa Electric Corp. are among those that invested in AIJ’s
fund, the Nikkei said. Advantest rose 0.8 percent to 1,118 yen
at the close of trading on the Tokyo Stock Exchange after
falling as much as 3.3 percent. Yaskawa Electric lost 0.8
percent to 790 yen. The benchmark Nikkei 225 Stock Average
climbed 0.5 percent.

Advantest, a maker of memory-chip testers, said in a
statement it has 1.7 billion yen, or about 8 percent of its
total corporate pension fund, invested with AIJ. Yaskawa
Electric has about 2 percent of its pension money managed by AIJ
and the impact will be limited, said Ayumi Hayashida, a
spokesman at the company.

“I don’t think the story about AIJ will have much of an
impact on the overall market, but it may put investors in a
wait-and-see mode,” said Yoshinori Nagano, a senior strategist
in Tokyo at Daiwa Asset Management Co., which oversees about
$100 billion.

The truck driver pension union in Fukui prefecture has
invested about 300 million yen in AIJ through a brokerage, said
Kazuyuki Hashimoto, an adviser to the retirement plan.

“We’ve got a call from the brokerage this morning, but we
don’t know any details yet,” he said yesterday, adding that the
pension will wait for the outcome of the regulator’s probe.